Sideways: Staley bets the farm on the Fab Four

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By:
Jon Macaskill
Published on:

Barclays CEO Jes Staley has staked his future on the ability of four markets veterans to produce a fast turnaround in performance at the firm’s investment bank.

sideways-160When Staley presented a dismal set of third-quarter results for Barclays on October 26, he doubled down on his strategy of trying to rebuild market share and revenue growth for the firm’s investment bank and went into unusual detail on who he expects to deliver a Lazarus-style rebound.

Around £20 billion ($26.2 billion) of risk-weighted assets will be recycled and an additional £50 billion of balance sheet capacity will be deployed across markets financing to give the business a boost.

Staley singled out three markets pros who were hired recently by Barclays as he tried to sell the story of future recovery on a call with analysts to discuss those third-quarter earnings.

He mentioned that Stephen Dainton, formerly of Credit Suisse, has been appointed head of equities; Michael Lublinsky has arrived from hedge fund Brevan Howard as head of macro; and Guy Saidenberg, a former Goldman partner, has become head of sales.

These three will join existing head of credit Adeel Khan to make up the four key markets subordinates to Tim Throsby, a former JPMorgan equities head who was hired last year by Staley to run investment banking at Barclays.

The fabulous four face a low hurdle to recover from the third quarter, when Barclays underperformed its peers in nearly every markets business.

Macro revenues were down by 40% compared with the same quarter in 2016, credit fell by 22% and equities declined by 24%, to bring overall markets income down by 31%.

Barclays pleaded mitigating circumstances such as the re-integration of some assets from its non-core unit and an absence of previous treasury gains.

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Staley: trades "didn't
go our way"

There were also self-inflicted trading wounds to compound the effect of low volatility on markets revenue, however. Staley said there were “some trades that didn’t go our way” in the bank’s flow equity derivatives business, which has historically provided a greater share of its equities revenues than at most peers, for example.

Dainton may feel he can solve problems in the flow equity derivatives business, both in New York, where Barclays is a big player, and elsewhere. But Dainton and the other markets heads at Barclays are under enormous pressure to turn around their businesses quickly, which may tempt them to push too hard for growth.

The new hires are highly experienced but have records that have misses as well as hits.

Saidenberg, for one, worked in cutting-edge business lines when he was at Goldman, but his journey across the asset classes was not always smooth.

After roles spanning rates, European equity exotic options and Asian structured products, Saidenberg was global head of FX trading in the third quarter of 2013 when Goldman racked up currency trading losses reported to be well over $1 billion.

This was the main driver of a 47% fall in FICC revenue that quarter, which is a reminder that 2017 is not the first year Goldman has had problems with what it euphemistically calls “inventory management” issues.

It is also a reminder that highly regarded structuring staff can run into problems when markets fail to behave as modelled.

Lublinsky, the new macro head at Barclays, worked at Brevan Howard as US head of fixed income for less than two years, which makes it difficult to gauge his contribution to the hedge fund’s own attempt at a recovery story.

Lublinsky previously spent over a decade at RBS, which he joined after nine years at Credit Suisse, latterly as head of interest rate options. Like Saidenberg, Lublinsky is one of the derivatives experts who drove performance at many investment banks before the credit crisis of 2008.

Staley correctly observed on his analyst call that: “You cannot cut yourself to glory”. Trading your way to glory can be tricky too, however.

For Staley’s new hires to recreate their old trading magic, there will need to be a timely rebound in market volatility.